Thursday, October 6, 2011

Money Matters (Part 1)

It is 7:38 in the morning, and I have already been at work for about 10 minutes. Yawn... So early! The good news is, we have established that driving takes just as long as transit if you leave before rush hour really kicks off. The bad news is, we totally did not need to leave so early. Albeit, Nick had a meeting at 7:30 downtown anyways that he is only going to be slightly late for instead of really late for so it all works out. And besides, it gives me a few minutes to blog before starting my day.

Nick was trying to help me brainstorm and come up with ideas of what to blog about - a theme or topic, if you will. 30 days is a lot of blogging, and my life seriously is not THAT interesting. So yesterday's post "A Penny Saved..." was the start of something. It was the start of me sharing what Nick and I have found "works" for making it financially as a young couple starting out in a big city. Don't get me wrong, I am certainly no expert, but, through trial and error, we have come up with some pretty workable ideas that I thought I would pass along because it would have been great to have someone sit down with us when we first got married and share a bunch of ideas to get us started.

P.S. The title is supposed to be a play on words, JUST in case your
brain is as foggy as mine is at this early hour. Don't go thinking I'm
putting too much emphasis on the importance of money. I just want to
share ways we have found to be responsible with it - not to make it our
"god".

Okay, I like the cute pigs.

I don't know if anyone can relate to where we were at, but I'm willing to bet that a lot of people might. We were married at 23 and 24 with a good student loan, some credit card debt and throw in some personal debt to family members as well. I was just starting a secretary job at a good, but still base salary and Nick was on Craigslist trying to break into the film industry. Both of us had spent about a year's worth of school on what we were doing, though I did have piano teaching to fall back on, but no students as I had just moved here!

It was pretty tight. However, we took a moment (and advantage of the fact that we were on our honeymoon for two weeks so had less expenses), and figured out a few primary things that our entire budget/financial plan is based upon. I'm going to share what those things are for this blog and, yes, I have already used up my 10 minutes I allowed myself to type this. However, I'm not even supposed to be at work for another 10 minutes and I've already been working, so I will help myself to another few minutes to continue this. I will unpack each of them in a subsequent blog post, but for now, here is an overview:

1. We sat down and figured out how much we needed each month to pay our
bills and our debts and realized we could live on about $3,000 a month
all inclusive. We added up our rent and our other "fixed", unchangeable expenses. We made a plan of how to pay off our debt. The end figure was $3,000 a month.

2. We postponed paying off debt aggressively and postponed saving for the future. Both of those things are what any financial planner will tell you are super, duper important, but we put them on hold for a minute. Instead we socked away as much money as we could for a while, scrimping and saving, and paying minimum payments on everything until we had saved up about $3,000.
Then, on November 1, 2009, we had $3,000 in the bank and we started to spend it. We didn't TOUCH any money we made in November at all. All of November's expenses were paid from our $3,000 in savings. Then on December 1, 2009, we started to spend the $3,000 we had earned in November while living off our savings, and didn't TOUCH any of the money made in December - until January 1, 2010. You get the picture. We were living one month ahead. This has huge advantages that, in my opinion, made it SO worth it to do this rather than just attack our debt right away. Some of the advantages are:

A. We never have to worry about such and such a bill coming out of our account on a certain date. We didn't have to check and see if one of us got paid before we could take money out to pay for our phone, etc. The month's expenses were ALWAYS ready to be taken care of. Our bills and our paycheques do not need to dance around each other in perfect timing.

B. When we had a really bad month and did NOT make a full $3,000, we knew we had to cut out everything (including our bit of spending money, etc.) in order to make it work. We knew this on the first of the month and could change our spending accordingly. We weren't left sinking deeper into a hole at the end of the month because of unexpected shortness of cash. We knew exactly where our "tough times" were because we had a month's advance notice.

C. This is SO MUCH LESS stressful, which makes for a happier marriage in general.

D. We always have a "back-up-plan". If Nick breaks his ankle, or can't find work, etc. That's okay, because we have a month's savings at all times.

E. We don't waste $100 a year on bank fees. (Add it up - that $8.50 you pay to have a bank account each month adds up over a year!). We have an account that lets us pay no bank fees as long as we have a minimum balance of $2,000, which we do because as we spend it, we are getting paid and the money is going right back in getting ready for the next month.

F. Nick does not always get paid right on time. Sometimes a project drags out, or clients are late paying their bills. We don't need to panic in these situations because we have bought ourselves a little extra time to chase them down if they are a week or so late in paying.

3. I am on salary, which is great, but Nick has a variable income. He can make $5,000 one month and $600 the next. How on earth do you make a budget around that? How can you know you will make $3,000 a month when one of you may not bring in enough or bring in too much? What do you do with the extra money? This step takes a little figuring out. You need to look at last year. We looked at how much Nick made in 2008. (This wasn't much because he was still in school for part of that!). We added it all up. Then we divided it by 12 (for each of the months in the year). That gave us his monthly AVERAGE. That is what we said his "salary" was. Now we were both on salary. When he made more (which he inevitably did as he was not in school part time in 2009), we took ALL that extra money (yes ALL of it) and created a "slush fund". Whenever Nick makes more than his "average", we do NOT spend it. It goes straight to that fund. Whenever Nick makes less, that's okay cause we have a slush fund to take money from and "top his salary up" back to what it should have been for that month. And, as mentioned above, this makes it okay even if we have to chase clients for an extra month to remind them they still owe us! (I will go into more detail in a later post about what we "cap" the slush fund at, and what to do if we made even more after the cap).

These three things formed our financial foundation and have been the springboard for a LOT LESS stress in our life and marriage. I will unpack each of these further in future posts, and go into more detail, but for now, there you have it. (I also promise later to show how we still have fun and treat ourselves. It's not all hard-core saving and work - just at the beginning to get started and slush funds built up, etc.).